Lack of consumer confidence signals tough times ahead
New Zealanders are fast losing confidence, and optimism in the domestic economy.
The latest release of the Westpac McDermott Miller Consumer Confidence Index reveals that consumer confidence has fallen to a record low, not seen since the survey began in 1988. After falling by 13 points to 79 in the June 2022 quarter, the consumer confidence index was well below its 34 year average of 110. These results are in line with the ANZ Roy Morgan Consumer Confidence findings we reported on in our latest Birds Eye View (BEV).
Increasing interest rates and rising living costs have led to New Zealanders feeling even less confident about the economy, than they felt during the recession of the early 1990s and the 2008 global financial crisis (GFC).
Households are under numerous mounting pressures
Annual inflation reached a 30 year high of 6.9 percent in March 2022. More recent data shows that food prices increased by 6.8 percent in the year ended May 2022, and the average price of 91 octane was just shy of $3 per litre in June 2022. All of this combined with rising interest rates, as the Official Cash Rate (OCR) hit a six year high, has resulted in the disposable income of households diminishing quickly.
As of the week ending June 19, consumers are spending much less on services and general retail in the economy, due to increased fuel and food prices, compared to the same period in 2019.
The proportion of households who say it is a good time to buy a major household item reflects these pressures, with the number plummeting to a record low in the June 2022 quarter.
Meanwhile support measures have not strengthened consumer confidence.
To support households, the Government halved the price of public transport fares and reduced the fuel tax for three months (with this expiring in June). In addition, in the latest budget, it announced one-off living payments for middle earners across New Zealand.
Despite these support measures, New Zealanders remain pessimistic about their future financial position, and the future economic state of New Zealand.
When survey participants were asked if they expected good or bad economic conditions over the coming years, more expected bad conditions in both the 1-year and 5-year future outlook. Again, this low level of confidence in the long-term outlook for the New Zealand economy has not been seen since the survey began in 1988.
All signs are pointing towards economic conditions continuing to worsen.
The Reserve Bank of New Zealand (RBNZ) has already signalled that there are more OCR increases to come. The Russia-Ukraine conflict is still ongoing, and supply chain blockages are still not completely resolved, meaning continued pressure on households.
If consumers believe there will be tough times ahead they will alter their behaviour, for example by delaying all but essential purchases. This will have a negative flow on impact on businesses. The increasing cost of living, and record low consumer confidence, has already led to decreased spending, and will likely limit any further economic growth. The New Zealand economy is facing some severe constraints and pressures in the second half of 2022.